Can closing costs be included in your loan?

Written by: Jenny Rose Spaudo
• Updated •5 min read
This date may not reflect recent changes in individual terms.
Young family in the front yard of their new homeImage: Young family in the front yard of their new home

In a Nutshell

Mortgage closing costs can cost you thousands of dollars upfront. Some lenders will let you roll closing costs into your home loan, but that’ll likely increase your loan amount and your interest rate.
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Don’t have enough savings to cover closing costs? Sometimes you can include closing costs in the loan, but you’ll likely end up paying more for the loan in the long run.

On top of a down payment, taxes, lender fees and points, closing costs can add thousands of dollars to the cost of a mortgage loan. If you’re looking to avoid paying these fees upfront, it may be possible to roll them into the loan itself.

Some lenders will waive closing costs or let you fold them into the loan — this is sometimes called a no-closing-cost mortgage. But doing this can increase your APR and overall loan amount, which means you may pay even more in the end.

What are closing costs?

Closing costs are fees your lender charges on top of your down payment when you close a mortgage loan. They’re usually about 2% to 5% of the home’s purchase price. As the buyer, you typically pay all closing costs, but the seller may cover some of them depending on your state’s laws and how you negotiate the contract.

Some government-backed loans approach closing fees differently. FHA loan closing costs, for example, are typically 3% to 4% of the purchase price, and HUD may cover many of them, depending on your situation. VA loans require the seller to cover real estate commissions, brokerage fees, buyer broker fees and a termite report, while the buyer is responsible for the VA funding fee and any other required closing costs.

Common closing costs for a buyer

At least three days before closing, your lender will send you a document listing the closing costs you’ll need to pay. This list is called a Closing Disclosure or a final loan estimate. Your Closing Disclosure might break up your expected closing costs into two categories: loan costs and other related closing fees.

Loan costs often include the origination or application fee, underwriting fees, discount points, attorney fees, appraisal fees, title-related costs and credit report expenses. You’ll likely pay property taxes, homeowners insurance, recording fees, transfer tax, HOA fees and flood insurance if needed.

How to estimate closing costs

Your closing costs can vary based on your lender, your loan type and terms, the amount you’re borrowing, your down payment, your interest rate, where you live and the homeowners insurance you purchase. You can use Credit Karma’s closing costs calculator to estimate the fees and taxes you’ll need to pay at closing.

Can you include closing costs in a new mortgage?

Sometimes you can roll your closing costs into the mortgage loan itself, depending on the lender and the loan product. But even though you won’t pay these fees at closing, you’ll end up paying them — and perhaps extra — over the life of the loan. Generally, lenders make up for “no closing costs” by adding these fees to the total loan amount or charging a higher interest rate.

Some lenders may offer you lender credits to cover some or all of your closing costs, but once again, accepting these lender credits typically raises your interest rate or increases your loan amount.

Can you include closing costs in a mortgage refinance?

Some lenders also offer no-closing-cost refinance loans. Like no-closing-cost mortgage loans, lenders often cover these fees by rolling them into your loan amount, offering lender credits or raising your APR.

Before folding your closing costs into a refinance loan, you may want to check how this would affect your debt-to-income ratio, which is your total monthly debts divided by your total monthly income. If your DTI is too high, it can affect the quality of your loan terms and chances of home loan approval.

Also, check how including closing costs would affect your loan-to-value ratio, which is your loan balance divided by the appraised value of your home. Generally, you can’t take out more than 80% of your LTV with a cash-out refinance. And if your LTV is above a certain amount, you may need to pay private mortgage insurance, which increases your monthly mortgage payments.

Is it a good idea to include closing costs in your loan?

Rolling your closing costs into your loan may make sense if you don’t want to pay a hefty lump sum at closing and can afford a higher monthly mortgage payment. A no-closing-cost refinance could also be viable if you want to take advantage of lower interest rates. If rates are significantly lower than the current terms on your loan, you may be able to save money despite a higher loan amount.

The disadvantage of folding closing costs into your loan is that you’ll pay more in the long run because of higher interest rates or a larger loan balance. You may want to pay closing costs upfront if you have enough savings and aren’t planning on selling your home for a while.

Also, if the no-closing-cost loan includes a prepayment penalty, your lender will charge you a fee if you refinance or sell your house within the timeframe it has set.

Lenders that include closing costs in a mortgage

U.S. Bank

The Smart Refinance loan from U.S. Bank allows you to refinance without upfront closing costs, origination fees, application processing fees or prepayment penalties. You also have the option to cash out and change your loan term to five, 10, 15 or 20 years.

CapCenter

CapCenter — a lender and realty team that services six states in the Southeast and Washington, D.C. — waives or covers many of the traditional closing costs for its home purchase and refinance loans with fixed or adjustable rates. But its Zero Closing Cost loans don’t cover home inspection costs, homeowners insurance premiums, property taxes, or any required taxes or fees to record the purchase deed.

Nutter

Licensed in all 50 states, Nutter offers mortgage refinancing options without upfront closing costs. The lender claims to have successfully closed 100,000 no-closing-cost loans, and it offers fixed and adjustable rates.

What’s next?

Though there are some situations where it may be helpful to fold closing costs into a loan, you typically pay more in the long run. So before making a decision, it’s a good idea to crunch the numbers to figure out how a no-closing-cost loan would affect your short- and long-term financial goals.

And remember, while shopping for a loan, you can ask lenders to send you estimates for a zero-closing-cost loan and a loan with upfront closing fees so you can compare your options.

About the author: Jenny Rose Spaudo is a freelance writer and content strategist specializing in finance, technology and real estate. Her writing has appeared in Business Insider, Credit Karma, GOBankingRates and more. Visit jennyroses… Read more.